RBA Hold Rates for Thirteenth Consecutive Month | Daily FX Commentary

• RBA leave interest rates on hold for thirteenth consecutive month;
• Sterling continues decline despite stronger domestic construction data;
• US data continues to suggest a broad economic recovery and forthcoming rate hike.

The RBA were true to their word once again in yesterday’s rate decision meeting, citing a similar rhetoric that has become familiar and repetitive for global markets. Few had expected anything different from the Central Bank and a modest fall in the Aussie overnight is more attributable to continued dovish rhetoric from Glenn Stevens rather than his economic outlook, particularly as we approach today’s Q2 GDP numbers. Whilst many would argue that the Governor was reading from last month’s speech but there was one element which markets took an interest in, the acknowledgement of a slowed Chinese property market, something that we have not heard such comments on previously.

Dismissing some surprisingly strong UK construction data, Sterling continued to make headway against a basket of currencies yesterday as a survey showed that support for Scottish independence is growing ahead of the referendum later in the month. Whilst polls still suggest that a small majority will vote against independence, the number appears to be falling and the consequences that an independent Scotland would have on the UK economy are still being measured. The Scottish referendum aside, geopolitical tensions and a Central Bank that is sitting comfortably on the fence after softer economic data has left traders unconvinced of monetary policy adjustments in the near term, particularly with UK general elections taking place in May.

As most economic signals continue to point towards tighter monetary policy from the Federal Reserve, the greenback has continue to climb higher, overnight boosted by stronger than expected ISM manufacturing data coming in a 59 vs expectations of 57 and a stark improvement on the July numbers. In addition, both residential and non-residential construction spending jumped 1.8% in July, a significant uplift considering the impact of construction activity on US GDP. USDJPY traded as high as ¥105.20 overnight, GBPUSD falling to lows of $1.6467. All eyes are on the European economy at present as the region faces disinflationary pressure, however the Japanese economic difficulties appear to have been somewhat cast aside. Dollar bulls have favoured short EURUSD positions in recent months, but if the ECB fail to deliver a stimulus package at tomorrow’s rate decision meeting, we will likely see further upside in USDJPY.

[B]Tom Williams
Currency Analyst[/B]